REV-ing it up in New York: A Look Under the Hood of the Reforming the Energy Vision Track I Order

New York's Reforming the Energy Vision proceeding has the potential to re-make the state's electric system for the better. Here's a deep dive into the details.

There are big goings-on in the Empire State these days related to how to move to a 21st century electric system. And while there is much work ahead, the early results are noteworthy.

On February 27, the New York State Public Service Commission (PSC), which regulates New York's utilities, issued its Track I order that is the first major step in outlining the Reforming the Energy Vision (REV) initiative. The REV is an effort Governor Cuomo initiated more than a year ago to make New York's electric system cleaner, more resilient, and more affordable. Considering the scale and scope of the REV when it was first launched, there was certainly the possibility that it could fizzle as the details began to emerge. And while there are some very significant details yet to be hammered out, the PSC's Track I order represents a significant step forward toward achieving just what the governor planned. It can significantly curb greenhouse gas emissions, make the air our kids breathe cleaner, create new jobs in New York, and help keep energy dollars in the state's economy. (The other option: sending them elsewhere to buy fossil fuels. In 2012, New Yorkers sent a whopping $39 billion in energy expenditures out of state, the New York State Energy Research and Development Authority [NYSERDA] estimates.)

New York has big power needs. The Track I order the state's Public Service Commission issued recently can help supply them in a way that's cleaner, less expensive and more resilient, if it continues to prioritize clean energy. (photo: Prathamesh Kale)

Shortly after the order was issued, my colleague Kit Kennedy provided NRDC's initial, high-level thoughts on the 328-page document. This post digs a bit deeper and also sets the context: New York's foundational renewable energy and energy efficiency standards, both of which have made New York a clean-energy leader, are set to expire on December 31. That means the stakes here are high, because the decisions made by the PSC in the coming months--including this Track I REV order, a Track II order down the road, and the related forthcoming Clean Energy Fund proposals--will establish whatever comes next.

Another piece of the New York Clean Energy puzzle should also be mentioned: the governor's office is expected to release this spring its legally mandated New York State Energy Plan. That plan will contain additional policy commitments; NRDC continues to advocate that these should include clear targets for carbon reductions, as well as energy efficiency and renewable energy deployment for the near-, medium-, and long-term.

But let's take a look at what we've got so far from the Track I order:

The Six Commandments of REV: Everyone needs rules to live by. Here is the impressive REV credo, verbatim: "1) Enhanced customer knowledge and tools that will support effective management of the total energy bill; 2) Market animation and leverage of customer contributions; 3) System wide efficiency; 4) Fuel and resource diversity; 5) System reliability and resiliency; and 6) Reduction of carbon emissions."

It's an admirable list of objectives for the electric system and NRDC looks forward to helping make sure the rules that implement this set of principles will help the list live up to its vast potential.

To DSPP or Not to DSPP? That is the Question: A central tenant of the REV is that New York will have a system operator at the retail--that is, at the distribution--level (similar to how the NYISO operates the "bulk system" of wholesale energy from large centralized power plants and transmission lines). Dubbed the Distributed System Platform (DSP) Provider, this entity will serve as a retail-level dispatcher for a grid supplied not only by traditional power plants, but also by a vastly expanded fleet of Distributed Energy Resources (DER). These resources are defined in the REV order as "including end-use energy efficiency, demand response, distributed storage, and distributed generation. DER will principally be located on customer premises, but may also be located on distribution system facilities." In other words, more rooftop solar arrays, targeted energy-efficiency solutions in our buildings, and ramped up demand-response programs that enlist consumers to cut their energy use at times when demand on the grid is high.

One of the basic questions in the REV proceeding has been what type of entity will fill that role. The answer in the Track I order is that local service providers--utilities such as Con Edison and National Grid--will do the job. As that plan is developed further, we will, of course, weigh in, as we have in our formal comments, about the need to mitigate market power and to coordinate this new market as seamlessly as possible with NYISO's wholesale electricity markets.

Who Can Own DERs?: Primarily, not utilities, except in circumstances where the market does not respond cost-effectively to meet the grid's needs. This is no surprise, given that utilities were granted the DSPP role. Adding sweeping utility ownership of DER in addition to the DSPP role would essentially re-integrate New York's utilities at the retail level, making them both generators and distributors again, a connection the PSC sundered nearly two decades ago. Additional clarity around the precise conditions under which utility ownership will be permitted must be provided in order to fulfill this directional commitment by the PSC.

What Will Happen to Energy Efficiency?: New York currently invests roughly $360 million a year on energy efficiency programs, not including programs on Long Island. Half are administered by utilities and the other half by NYSERDA. These are incredibly cost-effective programs, with NYSERDA efficiency programs alone returning $3 in energy savings for every dollar invested. (That figure doesn't include health savings that result when power plants produce less pollution or savings that come from mitigating the dangers of global warming, by the way. Were those counted, the benefit-to-cost ratio would be even higher.) Last week's order continues that cost-effective spending in 2016 by establishing dollar budgets and megawatt-hour savings targets for utility programs that are consistent with 2015 levels. The REV order also establishes a cycle of annual filings for utility efficiency program updates, on a 3-year rolling basis. That's good news, even if many details of what will happen to utilities' efficiency programs in the future are still to be clarified.

NYSERDA's programs, meanwhile, remain less defined as they shift away from a more traditional role--acquiring energy efficiency resources--toward a "market transformation" role. Under such an approach, NYSERDA will work more in an upstream environment, doing things like facilitating the funding of energy efficiency, and helping create the market conditions to that can deliver it, rather than procuring energy efficiency resources directly. (For more on this discussion regarding evolving approaches to capturing energy efficiency, take a look at this excellent trilogy of posts from ACEEE, as well as this one from the folks at America's Power Plan).

This half of the New York's current energy-efficiency pie--NYSERDA's half--will continue to be mapped out in the parallel but inextricably linked Clean Energy Fund (CEF) proceeding in the coming months. Based on filings to date, it does appear that NYSERDA will retain a traditional energy efficiency resource acquisition role in the low to moderate income sector. In the meantime, here's some very encouraging language about that from the Track I order: "[W]e expect that the utility targets established here in addition to NYSERDA metrics established in the CEF proceeding will equal or exceed the current aggregate of utility and NYSERDA energy savings."

In other words, New Yorkers should expect energy savings to reach or surpass current levels. And while NRDC knows those levels can be effectively scaled up further to aggregate levels of 2 percent annual savings based on best practices in other leading states, at a minimum maintaining current levels is a good start.

What remains? The forthcoming Clean Energy Fund proposals and subsequent PSC actions in the REV must ensure New York delivers on this promise and avoids any backsliding on energy efficiency. (That's a concern conveyed by our friends at ACEEE, in this blog post).

What Will Happen to New York's Renewable Energy Incentives?: The current CEF proposal would fully fund the $1 billion, 10-year NY-Sun Initiative, designed to drive installation of 3,000-plus megawatts of solar power in New York state, along with the jobs, clean energy, and cost-savings that come with it. The giant question mark after 2015, with the expiration of our renewable energy standard, is what will happen to incentives for utility-scale renewable energy projects, such as on- and offshore wind farms and larger solar arrays. (NY-Sun's current design supports everything from rooftop to larger on-site systems in the 2 megawatt range. All of these are still "behind-the-meter." In other words, they serve on-site demand, rather than selling wholesale power to the grid).

Here, the Track I order directs NYSERDA to issue at least one more 2016 solicitation to procure utility-scale, renewable energy resources. That's important to avoid a cliff for the utility-scale market at the end of the year. It also establishes a spinoff, stand-alone "Large Scale Renewable (LSR) track" process that will decide how to drive post-2016 development of these resources, with NYSERDA directed to compile an "options paper" to submit to the Commission by June 1st for stakeholder feedback. Even as we continue to work through the precise mechanics of this next generation RPS, we will continue to advocate for a standard that requires New York to get 50 percent of its electricity from renewable resources by 2025.

Energy Efficiency Programs for Low- to Moderate-Income (LMI) Consumers: While the order doesn't offer an explicit energy-savings target for multifamily affordable housing, or, for that matter, for low- to moderate-income consumers in general, we anticipate additional clarification around that in the aforementioned Clean Energy Fund proceeding.

On the positive side, the order does explicitly recognize the unique challenges these consumers face in relation to the evolving REV plan. It also states that, as the REV transition evolves, NYSERDA should use more traditional energy-efficiency programs to meet the efficiency needs of these consumers, who spend far more than average New Yorkers on energy costs. In addition to including provisions intended to ensure LMI customers reap the benefits of the REV transition, the order included this very positive commitment to guard against disparate environmental impacts: "We require measures to avoid or mitigate potentially harmful emission concentrations from distributed generation or demand response in environmental justice areas."

We'll know more about these plans in the coming months, as the CEF details emerge, but we are cautiously optimistic.

And, of course, Electric Vehicles!: While there weren't a lot of details in the order on policies to promote electric vehicles, there was an encouraging affirmation of New York's commitment to EV deployment, ensuring the REV will support Governor Cuomo's Charge-NY Initiative. From the order: "DSP markets can assist a transition to electric vehicles by turning what could be a strain on distribution systems into a valued asset. Electric vehicles present great opportunity if coordinated with grid functions to provide storage and voltage support. Electric vehicles can also increase utility sales and reduce rate pressure caused by infrastructure needs." NRDC will work actively with utilities, third parties, and other stakeholders to build on this objective, with specific programs and price signals that capture the value EVs provide to the grid.

Moving Ahead: The Track I order established an ambitious set of requirements for utilities, from the already-in-process requirement to create retail, demand-response programs statewide, along with separate energy efficiency plans for 2016, to their REV pilots for innovative and targeted efficiency efforts. All of these proposals are due to the PSC by the end of the year.

But if the core REV objectives are to be realized, their success will hinge on how we set the rules of the road. The upcoming REV Track II order--a straw proposal is due out from the PSC on June 1st--will dig into a suite of regulatory issues, including but not limited to performance based ratemaking reforms. There are options for fundamentally changing the way utilities make money so that they are chasing clean energy resources like renewables and energy efficiency with the same vigor that they currently invest in traditional "poles and wires" infrastructure. The REV Track II order will also determine whether and how we can change, at a basic level, the ways consumers receive and use electricity and utilities maintain and build out their systems, even as utilities are presented with a value proposition to remain economically viable.

NRDC is hard at work on these proceedings, making sure the governor's proposal lives up to its potential. We're also working to ensure New Yorkers help lead the nation with a new way of organizing the state's electric system.

Game on.